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American Casualty Company of Reading, Pennsylvania ("American Casualty") filed a declaratory relief action against Michael Miller, who operated a furniture stripping company named "Stripper Herk." American Casualty requested a declaration it did not owe a duty to defend or indemnify Miller with regard to a bodily injury claim arising out of the discharge of chemicals into a public sewer.
Miller was covered under a CGL policy ("the Policy") issued by American Casualty ("the Policy"). The Policy had a pollution exclusion excluding coverage for "'[b]odily injury' or 'property damage' arising out of the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of 'pollutants' . . ." The Policy defined "pollutants" as "any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste."
The City of Santa Monica had retained a private contractor to work on the city sewer. An employee of the contractor, Valenzuela, was repairing a sewer line below the Stripper Herk establishment when he was soaked with wastewaters discharged from a drain outlet into the sewer. He lost consciousness and sustained serious injury. City inspectors found Stripper Herk was discharging methylene chloride, a solvent, into the sewer.
The United States Attorney's Office initiated criminal charges against Miller. Miller pled guilty to the negligent discharge of pollutants into a publicly-owned treatment works and storage of hazardous waste without a permit.
Zurich American Insurance Company ("Zurich"), the private contractor's worker's compensation insurer, filed suit against Miller seeking to recover benefits paid to Valenzuela ("the Zurich action"). Miller tendered the defense of the Zurich action to American Casualty, which declined based on the pollution exclusion.
Valenzuela also sued Miller for damages ("the Valenzuela action"). Miller tendered to American Casualty, which declined to defend the Valenzuela action based on the pollution exclusion. Miller settled with Valenzuela and assigned his rights under the American Casualty Policy to Valenzuela.
American Casualty's declaratory relief action sought a declaration it did not owe Miller a duty to defend or indemnify with respect to the Zurich or Valenzuela actions. The trial court granted summary judgment in favor of American Casualty based on the pollution exclusion. Miller appealed.
The Court of Appeal held the Policy's pollution exclusion clause was unambiguous and precluded coverage for Valenzuela's personal injury. The Court of Appeal relied on the California Supreme Court's decision in MacKinnon v. Truck Insurance Exchange (2003) 31 Cal.4th 635 ("MacKinnon"). The Court of Appeal found the language of the Policy's pollution exclusion "substantially similar" to the pollution exclusion in MacKinnon.
MacKinnon held to avoid coverage, the pollution exclusion must "conspicuously, plainly and clearly appraise[] the insured that certain acts of ordinary negligence, such as the spraying of pesticides . . . will not be covered." When applying the "commonly understood meanings of the terms used" in the pollution exclusion, the exclusion only applied to injuries arising from "events commonly thought of as pollution, i.e., environment pollution . . . ."
The Court of Appeal noted the Policy's definition of pollutant included "chemicals" and methylene chloride was a chemical. The Court of Appeal further stated "[a] lay person would reasonably understand the release of this chemical into the public sewer" to be a form of "environmental degradation." Miller also had already pled guilty to "negligently discharging" the methylene chloride satisfying the exclusion's requirement the pollutant be "discharged."
The Court of Appeal rejected Miller's argument MacKinnon stood for the rule that a pollution exclusion does not apply to "one-time, ordinary acts of negligence." The Court of Appeal held the evidence did not support the conclusion Miller's conduct only occurred on one occasion. MacKinnon does not stand for the proposition that the negligent discharge of pollution should be treated differently from the intentional discharge of pollution. Instead, a pollution exclusion will bar coverage for a negligent discharge of pollution "if the negligent act is commonly thought of as environmental pollution."
The Court of Appeal also rejected Miller's argument a pollution exclusion only excludes coverage for "catastrophic events such as large scale environmental pollution," finding no authority to support Miller's contention. The Court of Appeal held the Policy's pollution exclusion was unambiguous and the discharge of methylene chloride into the public sewer was "commonly thought of as environmental pollution."
This opinion is not final. Though it has been certified for publication, it may be withdrawn from publication, modified on rehearing, or granted review by the California Supreme Court. Should any of these events occur, the opinion would be unavailable for use as authority in other cases.
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